Connecting Blocks with Cboe BIDS Canada

Key Takeaways

• Cboe BIDS Canada continues to grow significantly since 2022, and it is the leading Conditionals provider in Canada with over 80% market share
• Willing to Trade (WTT), which allows firm orders on MATCHNow to automatically interact with Conditionals on Cboe BIDS Canada, has contributed to this growth
• Cboe BIDS Canada offers unique and diverse liquidity, with buyside users from countries around the world and trading across a variety of sectors
• Cboe BIDS Canada offers excellent execution quality, with big trade sizes (in top 1%), large price improvement (3 – 6bps) and low adverse selection

Cboe BIDS has grown considerably as a venue to source unique block liquidity, especially in recent years as the platform became available in new regions worldwide. As a platform that allows the anonymous trading of large blocks of equities, Cboe BIDS’ unique sponsoring broker model provides for interactions with the buyside directly and helps reduce market fragmentation. In recent years, Cboe BIDS has grown its presence in Europe and has become available in Canada, Australia, and Japan.

Block trading is on the rise in Canada, and with the growth that Cboe BIDS Canada has achieved since 2022, it is now the leading block trading platform in the country. To highlight and explain this growth, Cboe’s Equities Execution Consulting team recently analyzed the platform, providing a deep dive into everything from overall activity and execution quality to liquidity profiles and price improvement.

Growth in Cboe BIDS Canada and Importance to Block Trading

Block trading is an increasingly important part of Canadian trading.^[1] As of June 2024, block trading constitutes 30% of the total Canadian market on a volume basis and over 50% on a notional basis.

Conditionals are a crucial tool for sourcing block liquidity while seeking high quality executions on large orders, while limiting the risk of information leakage and overfilling, as Conditionals rest undisplayed on the book until a match is initiated. At that point, the trader or trading algorithm can choose how much to trade through the firm-up process. In this way, Conditionals allow the trader or trading algorithm to rest on multiple venues to find liquidity, and they offer control on how much to trade through the firm-up process. Conditionals also offer price improvement in many cases, as the majority of Conditionals are ultimately executed at the midpoint of the National Best Bid and Offer (NBBO).

Conditionals usage has increased steadily in Canada, from less than 40bps of total Canadian block volume in February 2022, to over 140bps today.

MATCHNow introduced Conditionals to Canada in January 2019, before integrating into the Cboe Global Markets group (which includes BIDS Trading L.P.) in 2020, which allowed MATCHNow to launch Cboe BIDS Canada in February 2022. Since then, and with the inclusion of buyside users, Conditionals in Cboe BIDS Canada have surged in usage, reaching a high point of more than $2 billion CAD notional value in April 2024 and representing more than 73 million shares in volume in August 2024, making Cboe BIDS Canada the country’s leading Conditionals provider.

^{Figure 2: Cboe BIDS Canada Executed Volume and Notional Value.  Source: Cboe internal data}

Diverse and Unique Liquidity

There is diverse and unique liquidity on Cboe BIDS Canada, with the opportunity to interact directly with buyside volume, from both Canada and internationally. The number of international buyside firms on the platform has increased substantially since 2022. In the first quarter of 2022, 81.4% of Cboe BIDS Canada buyside volume came from domestic firms, with the remaining 18.6% coming from international firms. That is in sharp contrast with the first quarter of 2023, where domestic volume was 53.7% of total volume and international buyside volume increased to 46.3%. Now, in 2024, domestic buyside volume sits at 60.5% and international buyside volume is 39.5%.

Additionally, volume on Cboe BIDS Canada spans a variety of sectors. Materials and Energy are the most traded sectors by volume, followed by Financials and Real Estate. Looking at the Cboe BIDS Canada volume by market cap, there is diverse liquidity through small, medium, and large market caps. There is also a fairly even distribution of volume across market caps, creating opportunities for investors with a variety of goals and interests.

Price Improvement and Willing to Trade (WTT)

Price improvement opportunities on Cboe BIDS Canada are significant. The majority of trades are executed at the midpoint of the NBBO. At-the-touch executions are on the rise, comprising 22.1% of executed volume in the second quarter of 2024.

The rise of At–the-Touch executions, along with the overall growth of Cboe BIDS Canada, has been fueled by the growing usage of the Willing to Trade (WTT) feature on Cboe BIDS Canada. WTT gives block size firm orders routed to MATCHNow the ability to interact with block sized Conditionals on both a passive (DAY or WTT Passive) and active (IOC or WTT Active) basis. Through the enablement of a port default, firms can choose to enable all orders that meet the block size minimum for WTT and capture the extra liquidity resting in the Cboe BIDS Canada Conditional book, improving their fill rates. Success of WTT enablements is measured via the high execution rates we see in the book, coming in at 85% and 96% on WTT Passive and WTT Active respectively.^[2] Firms enabling WTT also receive high average trade sizes of over 10,000 shares.

The introduction of WTT Active in November 2022 has allowed for the measurement of price improvement for active orders. Prior to WTT Active, all WTT-to-Conditional trades were passive-to-passive matches. The total price improvement for WTT Active orders has increased significantly as Cboe BIDS Canada and usage of WTT have both grown, reaching a total of over $220,000 in August 2024 for all WTT Active orders, compared to less than $50,000 in November 2022. As a percentage of notional value, the average WTT Active trade has received between 3bps and 6bps in price improvement.

Firm orders that are enabled for WTT Active, on average, receive greater price improvement when they end up trading against a firmed-up Conditional, as compared to executions in the continuous book.

Execution Quality

The unique liquidity available on Cboe BIDS Canada leads to other superior execution quality measures, in addition to price improvement.

This concentration of block size order flow leads to significantly large individual trade prints for Cboe BIDS Canada, benefiting marketplace participants seeking big executions on top Canadian names. On average, the largest prints from firmed-up Conditionals on Cboe BIDS Canada are within the top 0.1% of volume across all markets on that date, for that symbol, half the time. These trades are within the top 1% of largest trades over 95% of the time. In August 2024, the average trade size of firmed-up Conditionals is 14,967 shares and $383,989 in value.

Moreover, fill sizes as a % of firm-up volumes are high, hovering around 70% over the past two years. This means that, if you firmed up a Conditional for 10,000 shares, you would trade 7,000 shares on average.

Broker markouts are another important metric to consider when analyzing execution quality. On Cboe BIDS Canada, markouts are positive on average, with very small price drift, even at the longest time horizon (five minutes). Additionally, price drift is no more than 25% of spread, which means the price deviation is within the NBBO.

Looking Ahead

Cboe BIDS Canada is continuously innovating and adding new features to meet client demand. The newest feature, Overtime, gives a buyside user access to additional liquidity around its block print. The firmed-up Conditional is protected at the print price and interacts with firm orders in the MATCHNow book. Effectively, this allows the residual of a firmed-up Conditional to passively match with other contra orders. Clean-Up, another new feature, allows a buyside user to expose a portion of its uncommitted liquidity as a firm order in the MATCHNow book, which allows the buyside user to “clean up” a residual order while maintaining the same broker on the ticket.

Cboe BIDS Canada has grown considerably as a leading platform to source block liquidity, and similar platform growth is being seen in other regions as well. The platform is also constantly innovating. Most recently, Cboe BIDS Europe announced the introduction of Cboe BIDS VWAP-X (expected to launch Q4 2024), a trajectory crossing service which is designed to utilize Cboe BIDS' proven Conditional trade negotiation and execution workflow to match orders based on a standard, exchange-regulated volume weighted average price (VWAP) methodology. This new offering is intended to help marketplace participants and their clients achieve better execution, while limiting information leakage and adverse selection. Innovations like this will continue to enhance the Cboe BIDS experience in regions around the world.

^{[1] For purposes of this discussion, block trades should be understood as trades of over 50 board lots and greater than $30,000 in notional value, or greater than $100,000 in notional value, as that is the minimum size threshold applicable to Conditionals on Cboe BIDS Canada. (The applicable minimum size threshold is based on the threshold set out in Rule 6.6 of the Universal Market Integrity Rules.)}

^{[2] Execution rates are calculated as the number of trades divided by the number of invitations to trade for a given order.}